The Competition and Markets Authority (CMA) is to investigate the sale of leasehold properties amid growing fears that unsuspecting homeowners have been ‘locked in’ to agreements which expose them to demands for extortionate charges.
It is to probe the circumstances surrounding the sale of new properties which included unfair terms, excessive fees and inadequate information for buyers after being invited to do so by the Housing, Communities and Local Government committee (HCLG) who have been looking at leasehold reform.
Evidence presented to the committee suggested some developers deliberately obscured these differences, with some leaseholders reporting that they had been told by sales staff that properties were ‘equivalent to freehold’.
Buyers were often told they would be able to purchase the freehold of their property at a later date, only to find that the leasehold had been sold on to a third party, which would had vastly increase the cost.
Consumer groups have been warning for several years that buyers of leasehold properties have been extensively ripped off in the same way as PPI buyers and endowment mortgage holders were in the past.
The fear is that billions of pounds may be involved in deals which have left some people trapped in unsellable and unmortgageable homes.
Full market study
Writing to the HCLG chairman Clive Betts, CMA chief executive Andrea Coscelli said his organisation plans to use consumer protection laws to conduct ‘a full market study’.
He warned that enforcement action will be taken against any firms found to have ripped off their customers once the probe is concluded.
The difference between freehold and leasehold properties is that with freehold the purchaser also owns the land that their home sits on.
With leasehold the land is owned by someone else who charges the homeowner ground rent for the right to live in the property from periods varying from 99 to 125 years.
Ground rent is payable on an annual basis, but there are also possible additional charges levied if an owner wants to make changes to their property.
The CMA believes there is ‘a significant number’ of owners who have been slammed with un justifiable rises in their ground rent or unfair charges for things as minor as changing a doorbell.
The HCLG committee is also concerned that some leaseholds have been sold on to a third party who then quickly steps up the cost.
Chairman Clive Betts said: “We heard extensive evidence from leaseholders regarding onerous ground rent terms, high and opaque service charges and one-off bills, unfair and excessive permission charges, and unreasonable costs to enfranchise or extend leases.
“Over the course of the inquiry we heard evidence suggesting that there are a significant number of cases where home buyers may have been deliberately misled about the terms they were signing up to.
“If the sale of leasehold house has taken place with the home buyer under the impression that they were buying it freehold, or ‘equivalent to freehold’ as many were told, then action needs to be taken.
“Equally, if a home buyer is told they will be able to buy the freehold in a couple of years, only to find out it has been sold on to another company, then this should be investigated.
“Home buyers need to be protected and, where evidence of mis-selling is proved, it is right that the CMA take action.”
A CMA spokesman said: “The select committee has raised serious concerns that many homeowners who buy long leasehold property don’t know exactly what they are signing up to and may be trapped in contracts with unfair terms once they move in.
“We have committed to investigating whether these homeowners are being hit with expensive fees or unfair contract terms, as well as being given all the information they need before signing on the dotted line.
We will set out the full terms of this work when it begins.”
Communities Secretary James Brokenshire has set up a pledge which has been signed by 40 property developers and freeholders to prevent new buyers being trapped in expensive deals.
He said: “For too long, exploitative and unfair leasehold arrangements have placed excessive burdens on homeowners. These have no place in a modern housing market and since becoming communities secretary I have repeatedly made clear my ambition to end them.
“That’s why I asked the Competition and Markets Authority to look into the issue and I am pleased to see it is now taking action.”